Electronics manufacturers have asked the government to allow smaller component makers from China to set up shop in the country to deepen the manufacturing ecosystem and make India more competitive. Toward this end, they have sought clarity on the foreign direct investment (FDI) policy as it applies to countries sharing a land border with India.
The India Cellular and Electronics Association (ICEA) also sought “immediate payment” of all incentives and dues payable to the industry under various programmes, including the production-linked incentive (PLI) scheme and other export promotion plans, in a June 23 letter to the Prime Minister’s Office.
“A clarity on FDI policy needs to be defined in view of the press note (Press Note 3 of 2020) to facilitate shifting of companies which will help create the ecosystem, (bring) investments, create jobs, facilitate skill improvement, and help develop the overall sector,” ICEA chairman Pankaj Mohindroo said in the letter. He added that the lack of clarity on the policy for enabling shifting of global value chains (GVCs) with their ecosystems to India can hurt the operations and mechanisms of companies looking to make the move.
India’s FDI policy for countries sharing land borders was amended on April 17, 2020, through Press Note 3 to only allow inflows through the government route with the necessary approvals. This took place amid heightened Sino-Indian tensions and was aimed at discouraging investments from companies based in China.
At the same time, India’s PLI schemes on electronics manufacturing, including smartphones and IT hardware, were designed to attract global manufacturers based in China. But for that to happen, partners such as component makers, also mainly from China, need to shift to India. That’s proving difficult because of the rules.
“Given the massive dependency on China for finished products, especially IT hardware, it is impossible to create a relocation pathway to deepen GVCs in India, without tier 2 and 3 manufacturers for finished products, sub-assemblies and components from China,” ICEA said.?
Hence, in the short to medium term, ecosystem partners should be encouraged and facilitated to shift to India, the letter said.
The government has been investigating the operations and finances of Chinese entities. Telecom gear makers Huawei and ZTE have been virtually shut out of the country and hundreds of Chinese apps have been banned. Smartphone market leader Xiaomi and second-placed Vivo—both from China—are under investigation by the Directorate of Enforcement (ED) for foreign exchange violations and money laundering, respectively. Fifth-placed Oppo is under investigation for duty evasion.
ICEA said a large amount of money is due to companies under various incentive and promotion schemes.
The body sought “timely closure of all processes for evaluating PLI disbursement and further early payment of all dues under the various export promotion schemes.”
The government has, for example, delayed the release of incentives for smartphone manufacturers that had achieved targets under the PLI scheme for smartphone manufacturing due to a closer examination of invoices raised by Samsung Electronics, ET reported in June.
Samsung Electronics, Hon Hai (Foxconn) and Wistron, along with Indian manufacturers
and UTL Neolyncs, have qualified for incentives under the scheme.
“Delay or / non-payment of the funds block the much-needed capital by the industry to fund and meet its planned investments whether capex or opex,” ICEA said. The delay impacts the supply chain as downstream payments to sub-suppliers suffer from “cascading effect due to paucity of funds.”
This money will be deployed back into businesses to achieve scale and deepen manufacturing competencies, ICEA said.
Multiile PLI schemes have been rolled out to make India a manufacturing hub. First off the blocks, and considered the beacon of success of such schemes, was rolled out for smartphone manufacturing with the aim of weaning companies away from hubs such as China and Vietnam. The aim was to make India a more attractive manufacturing destination with an export target for phones worth $100 billion by 2026.
The Rs 41,000 crore PLI scheme for mobile manufacturing includes incentives in the form of cash payouts based on investments and targeted increments in production. Eligible manufacturers will get graded incentives in the form of cashback at 6% of incremental sales of goods for the first two years each, 5% for the third and fourth years, and 4% for the fifth year.